FTC Puts Patent Trolls On Notice

from the crackdown-time... dept

While the Senate moves forward on a patent reform bill that won't solve any of the significant problems with our patent system (and will make certain aspects worse) and the Patent Office itself has apparently decided to throw in the towel on improving patent quality, it looks like the FTC has finally realized that perhaps it needs to step up and try to fix at least part of our severely broken patent system. Paul Alan Levy points us to the news that the FTC has released a massive 300 page report (pdf and embedded below) about the patent system, in which it clearly comes out against the problem of patent trolls, which it euphemistically refers to as "patent assertion entities." The report chooses this term, rather than the more common "non-practicing entities" because it notes that some non-practicing entities can be good (i.e., universities), and the real problem tends to be with operations who are focused just on using patents to sue.

The report notes that such trolls are a serious problem in the marketplace, as they appear focused on hindering innovation from companies that have actually innovated, rather than on "developing and transferring technology." Even better, the FTC actually notes the key claim we've been making for years (and which almost everyone else in government has ignored), that the "invention" stage is only one part of the ongoing process of innovation:

Increasing activity by patent assertion entities (PAEs) in the information technology (IT)
industry has amplified concerns about the effects of ex post patent transactions on innovation and
competition. The business model of PAEs focuses on purchasing and asserting patents against
manufacturers already using the technology, rather than developing and transferring technology. Some argue that PAEs encourage innovation by compensating inventors, but this argument
ignores the fact that invention is only the first step in a long process of innovation. Even if PAEs
arguably encourage invention, they can deter innovation by raising costs and risks without
making a technological contribution

The key point that the FTC makes is that one of the key problems here is that patents are (often on purpose) written to be quite vague, meaning that they totally fail to serve their purpose as giving notice for what they cover (and for actually teaching anything). Part of the report appears to be heavily influenced by the research of Bessen and Meurer, which went into great detail on the notice problem with patents, and just how costly it has become to various industries.

The key suggestion, then, from the FTC is for the US Patent Office to get rid of vague patents, by raising the bar on rejecting "indefinite" claims. Currently, like so much of the USPTO, the bar used to determine if a patent claim is indefinite is quite low. The FTC is hoping that the USPTO will raise the bar. Along those lines, the FTC is urging patent examiners to make sure that what a patent actually covers is really much more explicit, including establishing a clear record in the proceedings while reviewing the patent to establish what it actually covers, rather than allowing vague and indefinite language through. In fact, the report seems to suggest that the USPTO would be better off focusing on eliminating indefinite claims even more than judging nonobviousness.

On top of that, the FTC asks the courts to be much more aggressive in limiting ridiculous damages awards for patent trolls, especially condemning the widespread use of questionable "expert witnesses" who come up with unrealistic "rules" for how much a company should have to pay for infringing a patent.

I was also happy to see that the FTC clearly spent time exploring the fact that so much patent infringement has absolutely nothing to do with anyone "copying" the inventions of someone else, but rather independent invention. While it does not come down in favor of an independent invention defense yet, it does seem open to it, if some of the other recommendations in the report do not succeed in cutting down on the problems of the patent system. Its main worry appears to be that changing the liability for "inadvertent" infringers would create a dramatically different patent system, for which there's not enough economic evidence to know what will happen. Of course, we could point out in response that all of the changes put in place that massively increased the scope of the patent system were done with a similar lack of economic knowledge. However, I am pleased to see that the report at least calls for more research to see how such changes might impact the market.

On the whole, I definitely don't think the report goes far enough in its recommendations, but at this point, that's a pretty small quibble. This is one of the few times that we've seen a government agency really research and acknowledge many of the key problems with the patent system, and then suggest real changes to fix those problems. The FTC clearly spent a lot of time on this, and spoke with many of the top experts in the field, citing some fantastic research on the subject.

Of course, the big question is will it matter? There are lots of recommendations for improving the system -- with many directed at the PTO and the courts. But what if they're totally ignored (as seems likely)? Would the FTC take a stronger stand in going up against patent abusers? That would be quite a step, and would generate plenty of attention, but given where the system stands today, it seems like it might be necessary. Kudos to the FTC for actually pulling this report together, rather than going with the typical bland assertions about how patents automatically increase innovation and therefore more patents are, without question, better.
There's a lot more in the report, but on the whole, it really does seem to recognize the massive problems inherent in the patent system.

truth about trolls

Call it what you will...patent hoarder, patent troll, non-practicing entity, etc. It all means one thing: “we’re using your invention and we’re not going to pay”. This is just dissembling by large infringers to kill any inventor support system. It is purely about legalizing theft.

Prior to eBay v Mercexchange, small entities had a viable chance at commercializing their inventions. If the defendant was found guilty, an injunction was most always issued. Then the inventor small entity could enjoy the exclusive use of his invention in commercializing it. Unfortunately, injunctions are often no longer available to small entity inventors because of the Supreme Court decision so we have no fair chance to compete with much larger entities who are now free to use our inventions. Worse yet, inability to commercialize means those same small entities will not be hiring new employees to roll out their products and services. And now some of those same parties who killed injunctions for small entities and thus blocked their chance at commercializing now complain that small entity inventors are not commercializing. They created the problem and now they want to blame small entities for it. What dissembling! If you don’t like this state of affairs (your unemployment is running out), tell your Congress member. Then maybe we can get some sense back in the patent system with injunctions fully enforceable on all infringers by all inventors, large and small.

Two Points

It would seem that Masnick and the FTC are kindred spirits! We hope the courts will do their duty and return both of them back to the spirit world with the goblins of ignorance to hear their rantings. 300 pages is a lot to critique so I won't do it here let's just look at two idiotic rants of Masnick.

First we learn that some enforcers are good somehow their act of enforcement does no damage to this mysterious and undefined good thing called "innovation", while other enforcement is BAD for it mysteriously injures "innovation". A jury and judge are expected to determine that Joe Blow College is either a Good Patent Assertion Entity or a bad one? This is insane, undefined abuse and unreasonable, and you can bet at some level the law will not tolerate it any more then any other form of discrimination is tolerated in our country.

Second that hoary old piece of unmitigated BS called the "independent invention". Company invented completely independent of the actual inventor! Yeah, right and I've heard that one before and have the evidence to show them to be liars and cheats (I actually do). We all (well except the FTC and Masnick who could not invent their way out of a wet paper bag) have submitted inventions only to find that someone somewhere and when anticipated our idea- so you give up and either invent something better, or you get a license from the invention owner. Now there is a third way, cry salty tears for Masnick and the FTC and they will give you a pass!
There is no room for falsehood in the law, and it should be crushed whenever it rears it ugly head at a place like the FTC or out the Mouth of Masnick.

argument against sw pats supported implicitly

I was fairly skeptical, but, reading over the beginning, I see that their reasoning defending what they see as a properly working patent system doesn't seem to apply to software patents, so, if before turning their attention to the problems with patents, they defend it under assumptions that don't even hold for software, it means they have left the door wide open to attack software patents later on without being able to offer up the defenses of a properly working patent system. [In theory, software patents are in legal limbo, but in practice a great bunch of lawsuits and patents are for inventions that would be implemented in software.]

For example, in defending a useful patent system at the beginning of chapter 1, they make some assumptions that don't apply to sw pats:

> [The growth of technology transfer...] By providing a pathway for invention without commercialization, technology transfer also lowers barriers to entry for inventors who do not have access to the capital required to build manufacturing facilities and establish distribution channels.

Well, software, like all information, allows manufacturing and distribution to be accomplished essentially for $0 while R&D costs can be shared as is being done with open source. Additionally for R&D, there is no experimentation needed with mother nature nor need for costly tools. The "clay" is intangible information applied to idealized models not real materials whose manipulation involve numerous barriers and mysteries.

> Easier entry supports additional sources of invention, which increases competition among technologies to be further developed and incorporated into products.

For a technical endeavor, it doesn't get much easier than entry into software manufacture and distribution.

You also don't get better than $0, and most open source software development happens in spite of (not because of) patents. Even licensing on nonzero dollar terms destroys the open source software model.

> Moreover, competition among early-stage technologies for development funding is an important mechanism for allocating scarce resources to those inventions having the greatest chance of generating the products most valued by consumers.

There are no scarce material resources needed to manufacture software for everyone on the planet. And because of low-cost tools in ample supply (the computer and free open source software) and cheap access to key information (know-how, standards, and blueprints accessible for $0 online), the pool of creators is also extremely large.

Thus, patents don't offer modern software development any of these things sw development already offers efficiently. Meanwhile, patents come with all the restrictive negatives that curtail the creation and dissemination of original and collaborative works and speech. Patents also can turn what could be $0 into much higher prices.

Re: Two Points

300 pages is a lot to critique so I won't do it here let's just look at two idiotic rants of Masnick.

Amusingly, you respond to neither point. You just argue that what I said is wrong, without anything to back up either point. I, on the other hand, have tons of research to back up my position?

I find it so funny when the patent abusers show up here to attack me for calling out their anti-innovation platform and do so with actual evidence to support my position. If they were real innovators, they certainly wouldn't feel threatened by the reforms suggested.

It's really quite telling that both "staff" (hiya Steve!) and Vic are against the idea that patents should not be vague. I mean that's the key point in the FTC's report. Who could possibly be against that... other than people with vague patents they seek to abuse.

Re: truth about trolls

Ahh the irony. Nice use of the USPTO seal. While I'm well aware that it likely doesn't have any sort of IP protection, seeing as it's a government insignia and all, posting it right at the top of a page of semi-coherent rants regarding IP "theft"... classic.

Am I the only one who thinks it's implied that the presence of the seal indicates a USPTO endorsement of the site? Isn't that a no-no in Imaginary Property-land?

Re: Re: Two Points

Because, we can all learn a lot from a vague patent that no one can really understand. It's almost like Nostradamus prophecy, you can learn a lot about the future from it because it's so vague that it can be interpreted to account for whatever the future holds.

Re: Re: Two Points

From all this Mike, can you accept and understand that the system is functional, and that the FTC is working to control and curb the abuses that you have posted about here before? All this of course without having to toss the baby out with the bathwater.

Re: Re: Re: Two Points

From all this Mike, can you accept and understand that the system is functional, and that the FTC is working to control and curb the abuses that you have posted about here before? All this of course without having to toss the baby out with the bathwater

I think I made my position clear in the post. I don't think the FTC's recommendations go nearly far enough, and I doubt they will make any meaningful difference in the massive problems that have been exposed (factually) in the system.

So, no, I don't think the system is functional and it does not appear that the FTC is doing enough to fix it. It's *good* that they at least recognize the problems. That, alone, is a massive step forward. But that hardly means the system is functional or that this one report, with no concrete measures, will actually fix what is quite broken.

Re: Re: Re: Re: Re: Two Points

Yet, one report with a positive spin on piracy (posted on the same day) is definitive in some manner?

I am not following you

Interesting. Perhaps the issue is that you seem to assume that there are only two possibilities -- all in support or all in detraction. Instead, when you learn that there is everything in between will you learn to "follow" such basic concepts.

In this case, the two reports served very different purposes. The "piracy" report included a ton of empirical data that highlighted key issues with enforcement strategy. The FTC report certainly looked at and mentioned a ton of research and data, but the conclusions were timid.

Re: Re: Re: Re: Re: Re: Two Points

See, there is the rub. You see one report as helpful to your point of view, so it's a great empirical study. When you don't like a report because it goes against your basic views, it is "timid".

It's not hard to see where you are going. I give you credit for being very talented at shading the truth. However, once someone shines a bright light on things, the shading all disappears, and we are left with two stories being played very differently because of what you like and what you don't like.

funny....

Why is this a concern? Isn't this what the capitalism based on? Whoever can exploit the system will always will and once a fix is made to a system, another loophole is discovered and exploited. It's human nature and is legalized by those who benefits from it - hence capitalism.
If you assert "common sense or being fair" to capitalism, it is no longer capitalism.
Unless the world is ready, rather, unless the human race is ready for an utopia, exploits will always exists in one form or the other.